Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Executive summary
- Interestingly, copper prices have not been impacted by the escalation in the Russia/Ukraine conflict in the past week, which has left most of the risky assets vulnerable.
- Market participants use the nickname ‘Dr Copper’ for the industrial metal due to its sensitivity to the global economic activity.
- With more and more indicators pricing in a significant slowdown in the economic activity, investors have been questioning if copper prices will hold this year.
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The significant liquidity injections from central banks following the Covid19, combined with the surge in inflationary pressure globally have been strongly supporting copper prices in the past 18 months. These metrics have been constantly diverging from the China 10Y yield.
The chart below shows that the two times series – Copper and China 10Y yield – co-moved strongly in the 15 years preceding 2020; periods of falling bonds yields in China were associated with a plunge in copper prices and vice versa.
The drop in China 10Y yield in the past year has been mainly driven by the deceleration in economic activity combined with the sharp contraction in ‘liquidity’ last year. On the other hand, momentum in DM risky assets driven by global liquidity has been supporting industrial commodities such as copper. It is also important to add that investors also use some commodities as an ‘inflation-hedge’, particularly oil/nat gas and copper to a lesser extent.
Could the momentum on copper remain firm as fears of global economic slowdown intensifies?
Source: Bloomberg/MNI
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.